Deutsche Bank-Fed Watcher Soft data, hard choices-117073953

2025 21:35:05 GMT2025 21:35:05 GMTResearchDeutsche Bankamy.yang@db.comAmy Yang | (+1) 212 250 9959 | amy.yang@db.comAugust 5, 2025IMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. UNTIL 19th MARCH 2021 INCOMPLETE DISCLOSURE INFORMATION MAY HAVE BEEN DISPLAYED, PLEASE SEE APPENDIX 1 FOR FURTHER DETAILS.Fed Watcher: Soft data, hard choicesDeutsche BankResearchAmy YangEconomist(+1) 212 250 9959 | amy.yang@db.comMatthew LuzzettiChief US Economist(+1) 212 250 6161 | matthew.luzzetti@db.comBrett RyanSenior Economist(+1) 212 250 6294 | brett.ryan@db.comJustin WeidnerEconomist(+1) 212 469 1679 | justin-s.weidner@db.com Avik ChattopadhyayResearch Associateavik-a.chattopadhyay@db.comAugust 5, 2025ResearchDeutsche Bankamy.yang@db.comAmy Yang | (+1) 212 250 9959 | amy.yang@db.comAugust 5, 2025DB Fed Watcher: Soft data, hard choices2Fedspeak Who**TakeawaysBias*Waller [1] (08/01)▪ Price hikes from tariffs are one-off, can be looked through▪ Policy should be close to neutral 3%▪ Ex-tariff effects, inflation just slightly above target▪ Increased downside risks to labor market, limited upside inflation risks▪ Payroll growth stalling after revisions▪ Wait-and-see is overly cautious, improperly balancing risks, resulting in policy falling behind the curve▪ Unlikely to get clarity on tariff effects over next several months, or before labor market faltered▪ Can cut now. Then ease more if tariffs were a temporary shock to inflation, or pause if inflation and employment surprised to the upside Bowman [1] (08/01)▪ Ex-tariff inflation closer to target▪ Labor market near full employment, but now less dynamic, more fragile▪ Supported gradually moving moderately restrictive policy towards neutral and favored 25bps July cut, to proactively hedge against downside risks to labor market▪ Diminished upside risks to inflation, greater confidence in tariff-induced inflations being temporary. Weight more on risks to employment▪ Need to look through temporarily elevated inflation readings▪ See risks of labor market deterioration from delayed easingFedspeak, continued Who**TakeawaysBias*Daly [3](08/04)▪ Time nearing for rate cuts. Might need 2+ cuts in ‘25. Prepared to do more if labor market continued to weaken and no inflation spillovers▪ Increased evidence for labor market softening quite a bit than ’24. Further softening unwelcome ▪ Comfortable with July decision, but less so if we did it again and again▪ Not seeing signs of persistent tariff-driven inflation. Waiting to be certain of tariff effects might risk falling behind curves to cut ▪ Every meeting is live. Plenty of data before Sept. Stay open-minded▪ Job market not precariously weak, raw employment numbers less informative than unemp. rateHammack [5] (08/01)▪ Job reports disappointing, but labor market still healthy, in balance▪ See risks of softening labor market. Watch carefully▪ Inflation has been above target for 4 years, with more pressures coming▪ Miss to inflation mandate is greater